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TORONTO – Stock markets around the world got off to a bad start in the first day of trading for the new year, sparked by a sharp drop in China that triggered a new “circuit breaker” mechanism that closed trading early to limit losses.

European indexes followed Asia lower and by Monday’s close equity markets in North America were also solidly in the red, although well off morning lows.

In Toronto, the S&P/TSX composite index finished the day down 82.8 points or 0.64 per cent at 12,927.15.

In New York, the Dow Jones was off a much sharper 276.1 points or 1.58 per cent a while the S&P 500 retreated 31.26 points or 1.58 per cent to 2,012.68, with technology the weakest among its 10 sectors. The tech-heavy Nasdaq fared the worst, losing 1.04.3 points or 2.08 per cent.

WATCH: World markets dropped on Monday, an ominous sign on the first day of trading in 2016

Troubling start

The trouble started in China after the Caixin/Markit index of Chinese manufacturing fell in December for the 10th consecutive month in the latest sign of weakness in the country to darken the outlook for Asian exporters. That sent the Shanghai composite index plunging 6.9 per cent – its lowest level in nearly three months.

Other Asian markets also fell sharply as did those in Europe, with the DAX in Germany, whose export-led economy is sensitive to developments in China, down the most at 4.3 per cent.

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The news from China coincided with a report showing U.S. manufacturing contracted in December at the fastest pace in more than six years.

The figures from the Institute for Supply Management suggest the troubles of last year – slow overseas growth, a U.S. strong dollar and low oil prices – will likely continue to dampen U.S. manufacturing in 2016.

Meanwhile, U.S. construction spending fell in November for the first time in 17 months, reflecting weakness in spending on hotel and other private non-residential construction and government projects, the U.S. Commerce Department reported.

Traders were also unnerved by heightened tensions between Saudi Arabia, a huge oil supplier, and Iran. Saudi Arabia executed a prominent Shiite cleric, prompting protesters to set fire to the Saudi Embassy in Tehran.

That briefly sent the price of crude oil higher before it fell, with the February contract for benchmark crude slipping 41 cents to US$36.63 a barrel. February natural gas was unchanged at 2.34 per mmBtu.